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Elara Securities Maintains ‘Sell’ Recommendation on RITES Despite 43% Stock Surge

Despite a significant 43% surge in RITES stock in the year-to-date 2023, Elara Securities has reiterated its ‘sell’ call on the company, setting a target price of ₹370, suggesting a downside of more than 21%.

The stock has experienced a 23.5% gain in the past year, reaching a record high of ₹584 on September 11, 2023, but has since decreased by over 19% from its peak. Nevertheless, it has seen a substantial increase of over 54% from its 52-week low of ₹305.60 recorded on December 26, 2022.

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2023 has proven to be a volatile year for RITES, with positive returns in 6 out of 11 months and negative returns in 5. The stock had its highest increase in July, rising by 25%, while experiencing the most significant decline in February, down by 1.5%.

In the September quarter, the company reported a 23.49% decrease in consolidated net profit to ₹101 crore compared to ₹132 crore in the same period last year. Revenue from operations also fell by 11.68% to ₹582 crore in Q2 FY24 from ₹659 crore in the corresponding period in the previous year.

Elara Securities maintains its bearish stance on the stock for several reasons:

  1. Order Dynamics: RITES received a Letter of Award (LOA) to supply 10 diesel locomotives worth $37.7 million or ₹313 crore to CFM, Mozambique (Ports & Railways). However, it lost an order for 300 high-sided wagons to a competitor, even though RITES was previously declared L1. The estimated order size for wagons was ₹200 crore.
  2. Valuation: The brokerage had initially factored in inflows of ₹500 crore from Mozambique based on RITES’ L1 positioning. Due to the recent announcement, Elara assumes a lower inflow. Consequently, while keeping revenue and earnings estimates unchanged in FY24E, it reduced them by 2% each in FY25E and FY26E. Elara expects an earnings CAGR of 12% during FY23-26E, with an ROE and ROCE of 22% each during FY24-26E, considering a low working capital cycle despite the increase in turnkey construction, along with a strong dividend yield of 3.4% for FY24E.

Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.​​

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